“The Federal Reserve is in a quandary. The Fed’s policy makers want to raise short-term interest rates so they can say they did it. That would also give them room to lower rates if the economy slows again. But the economic evidence supporting higher rates keeps getting pushed into the future. My best guess is that the Fed will bump up rates by a token amount in the fall. They feel they have to do something five or six years into an economic recovery, even if it isn’t bold or substantial.” — T. Rowe Price Chairman Brian Rogers, quoted in Barron’s on 6/15/15
“Rate movement is almost never going to happen in a vacuum. If rates go up because the economy is going stronger and you ask me what the effect on stocks will be—it depends. It depends on how much the economy getting stronger pushes up earnings. This whole notion of freezing everything else and just looking at the effect of interest rates is misguided. It’s going to lead you down all kinds of wrong paths.” — Aswath Damodaran, Professor of Finance at New York University’s Stern School of Business, quoted on Bloomberg.com on 6/8/15
“With stocks near records, valuations elevated and Federal Reserve Chair Janet Yellen warning of ‘potential dangers’ in the market, leading academics are weighing in on whether the U.S. stock market is in dangerous territory... [Yale Nobel laureate Robert] Shiller judges stock valuations based on a cyclically adjusted price-to-earnings ratio that he co-created. The guage takes real stock prices divided by the 10-year average of real earnings per share. Recently, the ratio has been running around 27, which Mr. Shiller says is quite high by historical standards. Only three other times was the ratio frothier—in 1929, 2000, and 2007—and he cautions those were all before market crashes. Despite lofty valuations, Mr. Shiller thinks markets could keep rising for ‘some time,’ fueled in part by the lack of other high-yielding options and fear of missing out.” — Wall Street Journal, 6/1/15
Calm Before the Climb?
“A sideways market can be a correction in time, not price. Expect things to drift higher from here.” — Paul Hickey of Bespoke Investment Group, commenting on the fact that, since the first of the year, the S&P 500 hadn’t been down more than 3.2% or up more than 3.5%. He looked at the 10 other years in which the index stayed closest to where it started the year during the first 117 trading days, and found that it rose, on average, 6.6% during the remainder of those 10 years. — Barron’s, 6/22/15
Beware the market forecaster
“The only universal truth that the past offers about the markets is that they will surprise us in the future. And the corollary to that law is that the markets will most brutally surprise those who are most certain what the future holds.” — Wall Street Journal columnist Jason Zweig on 6/16/15
Wealth Built Slowly May Be Quickly Lost
“It takes the average recipient of an inheritance 19 days until they buy a new car.” — A financial planner commenting on a study that found 70% of rich families lose their wealth by the second generation, Time.com, 6/17/15
Mind over Emotions
“I suspect that temperament costs investors more than ignorance.” — John Train
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” — Warren Buffett
Matt Bell is Sound Mind Investing's Managing Editor. He is the author of four personal finance books published by NavPress and two video-based small group resources. Matt speaks at churches and universities throughout the country and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.
Mark Biller is Sound Mind Investing's Executive Editor. His writings on a broad range of financial topics have been featured in a variety of national print and electronic media, and he has appeared as a financial commentator for various national and local radio programs. Mark also serves as Senior Portfolio Manager to both SMI Advisory Service’s Private Client managed account program and the SMI Funds.
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